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Uzbekistan Restricts Access to Foreign Cash

Uzbek President Islam Karimov has labeled 2013 the “Year of Prosperity and Wellbeing.” Starting today, prosperity is best measured in bricks of small-denomination Uzbek sums.

The streets of Uzbekistan’s cities have long been home to a thriving black market cash exchange, where dollars are worth approximately 40 percent more than in banks. Unsurprisingly, that’s kept hard currency out of the hands of central bankers.

Uzbekistan's Central Bank says it is moving to "improve" regulations regarding the sale of hard currency by making it basically impossible to buy dollars, euros and the like, starting February 1. Its new protocols are based on a "thorough" study of local and foreign practices, the Bank says.

Previously, any adult Uzbek citizen had the right – theoretically – to purchase foreign cash of up to $2,000 in value per quarter at the official exchange rate. To ensure no one got more than his or her fair share, the bank made notes in each citizen’s passport with details of the transaction, including the date.

Because it is so much more valuable outside on the street, the hard currency was in high demand. So the banks rarely had enough cash for more than a few customers per day. Late on January 31 in Tashkent, for example, commercial banks were advertising dollars at 2,038 sums (advertising, not necessarily selling), while the black market rate was about 2,800 sums to the dollar. (The highest-denomination sum note is 1,000, meaning stacks of bricks are required for many purchases.)

The substantive rate difference spawned all sorts of schemes, your correspondent can attest. At many banks women (at least it always seemed to be gangs of women) would queue from early in the morning, intimidating, with the help of police and bank security, any one else trying to buy dollars. Those dollars, most Tashkent residents believe, quickly ended up on the black market.

Under the new regulations, in order to purchase foreign currency at banks individuals will have to produce their passport, an application to buy foreign currency, and a sum-denominated payment card (from which to make the purchase). Then virtual dollars or euros will be transferred to dollar or euro accounts on their international payment cards – which can only be used abroad or online. It’s a cashless process.

The procedure will just be available to a small part of the population because, according to the Uzbek Central Bank, only slightly over 230,000 Uzbek citizens (0.8 percent of the population) have international payment cards.

The dearth of cards is likely due to their extra expense. The country's largest commercial bank, the National Bank for Foreign Economic Activity of the Republic of Uzbekistan (NBU), for example, issues international payment cards for $10 per card but requires clients to make an initial deposit of $200 and keep a $100 minimum balance. This is a significant sum in Uzbekistan where most salaries do not exceed $200 a month.

Naturally, the Central Bank has not placed restrictions on selling foreign currency to commercial banks.